I use Powerline Ethernet in my house. I know it essentially broadcasts Ethernet to any outlet in my house via a 2 MHz to 86 MHz signal (source).
My question is, what stops Powerline Ethernet's signal from propagating to the grid, and then to my neighbors' outlets?
I think the grid also uses 60-Hz (source), so it seems like the signals can (in theory) go to my entire neighborhood. What stops this from taking place?
Nothing stops the signal. Unless you are completely off-grid and as long as the signal is strong enough, you can connect powerline adapters across flat/house boundaries.
I have accidentally "hacked" into my neighbour's unencrypted powerline network and succeeded in using his internet connection. I had to ask him to encrypt his network because my adapters kept connecting to his network.
I was unable to easily establish my own separate network because each time my pairing attempt ended up with my adapters paired to his network.
As explained by others the signal has a hard time going through quite a few things, most notably transformers.
But even if the signal goes beyond where you want it to go, powerline communications adapters include encryption, and only adapters that have been paired together can communicate (and decrypt data encrypted by another of the adapters).
If you buy a set they will usually be paired together during manufacturing. If you add an adapter you will need to go through the pairing process before it will work, which requires physical access to the device (usually pressing a button).
So while there could be a signal outside your home, no one can transform that signal into actual data (and vice versa).
It basically relies on the power wires not really being very good at carrying the frequencies involved. The signal might be able to propagate to your neighbors in an apartment building, but they'd have to have the correct adapter and possibly overcome some security to access it and that's not very likely. Things like wiring inductance, capacitance, GFI and surge protectors can degrade the signal quite a bit and it's probably not going to get through a pole transformer at all.
I am using Ethernet over power line at home. If two adapters are on different phases, the signal hardly passes between, and the communication speed is slow.
If one of adapters is connected to power via an extension cord with some kind of overvoltage protection, the signal does not pass. The signal does not pass transformers.
If you live in a private house, the power comes from separate windings, and your neighbors are fed from another winding. If it is apartments (UK as flats), it is possible the neighbors may connect to your network. Adapters have an option to encode transmission; read the manual.
As others already said power line signals easily can leave your home and spread to the neighbourhood.
This effect can no be avoided completely but can be minimized physically with what can be called "powerline reject filters".
These are filter modules intended to de-couple powerline networks inside of a building (or between buildings, flats, floors etc.).
They strongly suppress the frequency range used by powerline devices - in other words they strongly decrease the spread distance of powerline signals.
An example is the "ALLNET Powerline reject-filter 2,0 - 40Mhz 16A" (use Google to find it), very likely there are other such parts from other manufacturers around.
Of course it is strongly recommended to enable encryption on your powerline network. Thats makes it even harder for "intruders". Encryption does not prevent powerline from spreading out, but it limits the access to it.
Using such a filter does also prevent foreign powerline networks to enter your home. Thus they reduce interference of your own powerline network and may even improve connection quality and bandwidth of your devices.
Conversely, I know this "feature" was very useful for a friend who did want to network with a neighbour 6 houses down the road.
Here in New Zealand, there are three phases at 120 degrees, connected along the street, but only one is brought into each property, alternating. Thus every third house is on the same 240 V 50 Hz supply, along with every third streetlight. (We don't have 180 degree split-phase 240 V like the US.)
So if one phase drops, it’s possible to see every third house/streetlight is dark, but the other two thirds are normal.
The upshot: the two houses were on the same phase and could have "Ethernet" connection over about 150 metres apart. It was carrying IPX initially for network Doom, and later progressed to carrying IP for accessing media, etc.
Performance was something between 2 and 3 Mbit/sec, so it wasn’t fast, but perfectly adequate.
I had powerline ethernet adapters in the past in my LAN and found that input power filters on the near apparatus (say printers and PC itself) can "short" the signal and limit speed and distance of communication. Such filters use capacitors between live and neutral wires and they are practical shorts for high frequency signals (that's what they are designed for) while don't drain so much current at mains frequency (50 or 60 Hz, IEC norms limit them at 5 mA max for each device). So I put INDUCTANCES in series of devices power input to avoid such "black hole" for the powerline signal. You can use suitable coils with adequate wire current capability depending by the device power, but I also made some ones just winding PVC insulated wire around a plastic tube (an empty vitamine pills tube, say 1 inch diameter 6 inches long, filled with old rusted iron nails to greatly increase the inductance). It worked! So if you want stop your powerline signals out of your home I could suggest to put large inductances between your home wiring and electricity meter/switchboard (where electricity enters you home), but be sure the coil wire size can bear all your home power! Here in Europe a supply of 3 kW electricity is quite normal and with the voltage of 230V the maximum current reaches 16A, so a 2.5 square mm section (13 AWG) is theoretically sufficient to bear it, but in US I think you need larger wires ...
